Oil prices fell on Monday, as rare social unrest in China weighed heavily on both equities and commodities.
As at 1230 GMT, benchmark Brent Crude was down 3% at $81.24 per barrel, while WTI was off 3% at $74.20.
The weakness also pushed both BP and Shell lower in London, with the oil majors down 2% at 479.75p and 1% at 2,340.7p respectively.
China saw a wave of demonstrations over the weekend, after tens of thousands took to the streets in a number of cities, including Shanghai, Beijing and Wuhan, over strict Covid-19 controls.
The Chinese authorities are following a policy of zero-Covid, which has seen months of stringent lockdowns, electronic surveillance and mass testing. In contrast, most other countries have dropped most if not all Covid-19 restrictions.
The surprise outbreak of civil disobedience, which is rare in China, saw the Hang Seng Index close sharply lower on Monday, and the renminbi lose ground against the dollar, as well as curbing oil prices.
Victoria Scholar, head of investment at Interactive Investor, said: “Oil prices are trading sharply lower, after protests sparked concerns about weakening demand from the world’s largest economy.”
The unrest comes at a pivotal time for world oil prices. Opec and its allies, known as Opec+, are due to meet this weekend, after agreeing to cut output at its last meeting in October, despite international opposition. Last week de facto leader Saudi Arabia denied reports that the cartel was mulling a potential increase in output.
And in Europe, European Union countries are holding last-ditch talks over what level a price cap for Russian oil should be set at. The measure is due to come into force next week, to coincide with the introduction of a previously-agreed EU embargo on seaborne Russian oil and a similar ban in the UK.
Naeem Aslam, chief market analyst at AvaTrade, said: “It is demand that is creating the main issue for the price, and the fact that we have a potential recession threat and now the Covid issues in China, things are becoming difficult for oil traders.
“The reality is that no one wants to see more lockdowns in China, as a situation like this creates nothing but more headwinds for oil prices. Nonetheless, Opec’s meeting remains the main anchor for oil prices this week. There is no doubt that prices are likely to remain highly volatile as [they] are likely to react to all kinds of rumours. So far, what is priced in is that Opec+ isn’t going to increase production. Anything that deviates from this could make the price swing by a significant margin.”
